China Clarifies Share Sale Tax

by Mary Swire, Tax-News.com, Hong Kong

02 December 2010

Clarification by China’s Ministry of Finance about the taxes payable on profits from transfers or sales of shares which were formerly non-tradable was said to have caused a sell-off on the country’s stock market on November 30.

The tax, which was first introduced on January 1 this year as a 20% capital gains tax, was placed on profits from the transfer or sales of shares that were once non-tradable – primarily, in China, listed shares of those companies that were formerly under government control.

The clarification made by the Ministry of Finance was that individuals would be liable to pay individual income tax on their gains not only from the simple transfer or sale of those shares, but also in nine other situations, including if the shares are transferred through an inheritance, if they accept a takeover offer for the company in which they hold shares, or if they use the shares to subscribe to exchange-traded funds.

However, it was said that, while there had been a short-term effect, the announcement was unlikely to be a major factor in stock market in the future, which is much more likely to be impacted in the longer-term by the likelihood of higher interest rates and lower domestic economic growth.

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